Death and taxes: Inevitable, but not always paired. President Obama wants to change that. In a wide-ranging tax plan he’ll highlight at tonight’s State of the Union address, he’d close “arguably the biggest loophole in the tax code for high-wealth households,” says TPC’s Len Burman. Len explains the significance of the plan’s treatment of capital gains when a taxpayer dies. Right now, “If grandpa leaves you shares of stock that he bought for $10 and are now worth $100, you never have to pay tax on the $90 of appreciation.” Under Obama’s plan, grandpa’s estate would owe a 28 percent capital gains tax on the $90 profit. But not every grandpa: Capital gains subject to the proposed tax are concentrated among the rich.
Is there a backlash against tax cuts for the middle class? Republicans are “befuddled” by the President’s tax plan. GOP leaders like Senate Finance Committee Chair Orrin Hatch oppose the idea of taxing “small business, savers and investors” by raising the top tax rate on capital gains from 23.8 percent to 28 percent. But the GOP is saying much less about Obama’s plan to use the revenue to fund an increase in the child care credit to up to $3,000 per child, a $500 tax credit for working couples described as a “second-earner credit,” expanded tax credits for higher education, and tax incentives for retirement savings. Some of these ideas mirror proposals made by GOP lawmakers in the past.
In case you were wondering, big banks don’t like the plan, either. Obama’s plan would also raise $110 billion over ten years with a bank fee: A seven-basis-point fee on the liabilities of the nation’s biggest banks, investment firms, and insurers. The Securities Industry and Financial Markets Association sees this as a “targeted tax increase on America’s most productive financial institutions.” Is the banking association right? Or would a bank tax make sense? Obama rolled out a similar proposal five years ago and former House Ways & Means chair Dave Camp included one in his 2014 tax reform plan. Then, as now, the devil is in the details.
On the Hill this week… The Senate Finance Committee will hold a hearing Thursday on jobs and a healthy economy. The panel will hear from John Engler of the Business Roundtable, Stanford’s Robert Hall, and Justin Wolfers of the University of Michigan.
You can tune in to two tax policy webcasts, this week and next. On Friday, TPC and the International Tax Policy Forum will co-host a conference examining the history, causes, and consequences of corporate inversions, the policy response in the United Kingdom, and what actions the US should take. Its luncheon address will feature Senator Hatch. Next Monday, TPC and the Hutchins Center on Fiscal and Monetary Policy Policy at Brookings take a close look at how dynamic scoring, the models that JCT and CBO use for macroeconomic analysis of tax bills and other major legislation, and how best to communicate this analysis.
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